Estate planning is an essential step in ensuring that your family will handle your health and financial affairs the way you would like them to be handled, in the event of your absence or death. Whether it be due to death, illness or incapacity, the following documents are necessary in order for your wishes to be carried:
- Will
- Revocable Intervivos Trust (“Living Trust”)
- Durable Power of Attorney
- Health Care Power of Attorney (“Living Will”)
- Tangible Personal Property Memorandum
- Beneficiary Designations of Life Insurance/Retirement Assets
Will
A Will is a document that outlines how you want your assets to be distributed, and it appoints a person (the “Executor” or “Personal Representative”) who will make sure that your intentions are carried out upon your death. A Will is a legal document and it should be crafted by a lawyer trained to assist you in clearly identifying and outlining your intentions with respect to the appointment of a guardian for your minor children, and possibly establishing trusts which you may wish to establish at death for minor and/or incapacitated persons, or in cases where you simply want to protect your assets for a future period after your death for the benefit of one or more beneficiaries. A carefully drafted and artfully crafted Will can also implement tax planning and tax savings techniques. A Codicil is a legal amendment to an existing Will.
Revocable Intervivos Trust (“Living Trust”)
A Revocable Trust serves as a valuable supplement to a Will in certain cases. A person (the “Grantor”) contributes certain assets to the trust, or directs that the assets will be placed in the trust upon his death, but the person retains the right to revoke the trust and reclaim ownership of the trust assets at any time during his/her lifetime. Trust assets are not subject to probate, and pass directly to the beneficiaries of the trust in accordance with the provisions of the trust document.
Durable General Power of Attorney
A Durable Power of Attorney enables you to appoint a person as your attorney-in-fact/agent, to act for you in a limited or a general capacity with very few, if any, restrictions. Such a document, which is governed by state law, is a critical part of everyone’s estate plan, and it ensures that your agent will be empowered to handle all of your affairs until such time as you may wish to revoke or change the Durable General Power of Attorney. It is considered a “durable” document in that it endures a disability, so it is effective even if you become incapacitated. Without such a document, your family would have to petition a court to have a guardian appointed for you.
Health Care Power of Attorney (“Living Will”)
A Health Care Power of Attorney enables you to appoint someone to be in charge of making any and all decisions relating to your health, medical treatment, life sustaining treatment, etc. should you not be in a condition to make those decisions yourself. Such a document addresses the application of life sustaining procedures in the event of certain medical conditions, such as a persistent vegetative state and/or an end-stage medical condition. Sometimes a Health Care Power of Attorney/Medical Directive is called a “Living Will. This document is an essential part of everyone’s estate plan because it enables family members and/or close friends to know your intentions with respect to what type of treatment you want in the event you cannot communicate your wishes on your own.
Tangible Personal Property Memorandum
This is a separate document that is referenced in a Will and that enables you to direct the disposition of certain items of “tangible personal property” to a beneficiary of your choosing. Tangible personal property includes assets such as furniture, clothing, jewelry, collections, antiques, automobiles, etc., but not real estate, cash or other financial assets.
Beneficiary Designations on Life Insurance/Retirement Assets
Assets such as life insurance and retirement accounts have a contingent arrangement known as a “beneficiary designation”, which enables the owner to direct how he/she wishes these particular types of assets to be distributed upon death. Many times, people do not understand that what they state in such a beneficiary designation supersedes the provision of their Will, so it is critical that the primary and contingent beneficiary designations on life insurance and retirement assets are carefully crafted so as to coincide with and be compatible with the estate plan outlined in the Will, unless the person makes a conscious decision to provide for beneficiaries who are different from those beneficiaries named in their Will. In recent years, “Transfer on Death” beneficiary designations have become more prevalent with respect to non-retirement investment assets, and other accounts held at financial institutions. It is critical that any such “Transfer on Death” designation be analyzed and crafted, after first reviewing the plan outlined in a person’s Will, so as not to create an unintended result where the beneficiaries in the Will and the designation are not the same. For example, if you leave everything in your Will to a trust for the benefit of your minor children, but you have a beneficiary designation that simply names your minor children as the primary beneficiary of a particular asset (without mentioning the trust), then the children will receive the asset upon attaining the age of majority, even if the Will provides that they should not receive their inheritances until a later age.
Important Definitions:
Administrator
Person or institution appointed by the Orphans’ Court to manage the estate assets where no executor has been designated, or where the designated executor is unable or unwilling to serve.
Beneficiary
Person named in a Will or Trust to receive assets from the maker of the Will or Trust.
Decedent
Person who has died.
Executor (male)/Executrix (female)
Person or institution appointed in a Will, and thereafter appointed by the Orphans’ Court, to administer, manage and distribute a decedent’s estate in accordance with the terms of the Will. May also be referred to as a “Personal Representative”.
Grantor
Person who establishes a Trust. Also referred to as the “Trustor” or “Settlor”.
Intestate Heir
Person entitled to receive an asset under applicable state law, in the absence of a Will or Trust. If a person dies without a Will, he/she is deemed to have died “intestate”.
Personal Representative
Synonymous with the terms Executor or Administrator (see above).
Settlor
Trustor; Grantor. Alternate term for one who establishes a Trust.
Successor Trustee/Substitute Trustee
The Trustee who “takes over” upon the death, disability or resignation of the original Trustee or a prior Trustee.
Testator (male)/Testatrix (female)
Person who makes a Will.
Trustee
One who holds legal title to Trust assets, and also manages and distributes those assets in accordance with the terms and conditions of the Trust document. A Trustee may be an individual, or a bank, trust company or financial institution licensed to serve as a Trustee. A Trust may have one or more Trustees (Co-Trustees) who act together.
Trustor
One who establishes a Trust. The terms “Grantor” and “Settlor” are synonyms for “Trustor”.
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